Manufacturer's Suggested Retail Price (MSRP)
Definition: The manufacturer's suggested retail price (MSRP) refers to the retail price that the manufacturer of a product recommends for sale in the retail stores.
What Does Manufacturer’s Suggested Retail Price Mean?
What is the definition of MSRP? Normally, the MSRP is lower than the retail price or the end price that consumer pay because it does not involve any percentage for profit. However, if the economy is in a recession phase, the manufacturer's suggested retail price may equal the price consumers pay. The most commonly applied sector for the MSRP is the automotive industry, where the price must be displayed on the car so that consumer know that they are paying a fair price for the car.
However, MSRP applies to any retail item.
Let’s look at an example.
Company ABC is an auto manufacturer for prestigious, exclusively-branded vehicles, which are sold at high-end retailers. The company focuses on delivering a high-quality end-product to its customers. However, offering the vehicles at a discount poses a threat to the company’s brand image.
The company’s manager constructs an Excel spreadsheet to calculate the retention rate based on the wholesale price. Hence, he finds out that, giving out the end product to wholesalers at a discount rate, it lowers the retention rate significantly. For instance, for a car with an MSRP of $160,000, the retention rate is close to 48%, whereas for a car with an MSRP of $185,000, the retention rate is close to 43%.
Therefore, the manager constructs a second spreadsheet with the suggested wholesale prices to see how the retention rate improves.
With a suggested wholesale price of 20% higher, the retention rate improves by approximately 10%. However, the manager is still not satisfied, and he thinks that this might damage the brand image. So, he requests the retail stores to sell the vehicles at the MSRP and not lower than this price.
Define Manufacturer’s Suggested Retail Price: MSRP means the recommended selling price of a product in a retail setting.
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